Saturday, May 21, 2011

South Korea needs fewer wage slaves and more entrepreneurs

Earlier this year Humax, a maker of digital set-top boxes based in Seoul, announced that its annual revenues had exceeded 1 trillion won ($865m) for the first time. For South Korea, this is something of a milestone. Humax is a classic start-up, founded in 1989 after a chat between engineering students in a bar. Alas, scandalously few Korean start-ups grow this big.

The Korean economy is dominated by the chaebol, huge conglomerates with tentacles in every stew. The biggest, Samsung, accounts for around a fifth of the country’s exports. Although the chaebol have played a vital role in South Korea’s development, they also suck up credit and obstruct the rise of start-ups. “Everyone knows you don’t compete with the chaebol” is a commonly heard refrain.

Parents of bright young Koreans typically steer them into steady careers in the chaebol, the government or the professions. As in Japan, being a salaryman (or woman) is far more respectable than running one’s own firm. “In Korea, stability is everything,” says one such parent.

Widespread youth unemployment is changing that calculation, however. An impressive 58% of Koreans aged 25-34 have attended university, but 346,000 graduates are currently out of work, up from 268,000 two years ago. Some become entrepreneurs out of necessity: almost 30,000 young South Koreans say they want to launch their own companies, one survey found. And according to the government, the number of “one-man creative enterprises” in the country has risen by 15% in the past year, to 235,000.

Young entrepreneurs often favour tech fields such as social media or gaming, where the only barrier to entry is the power of your imagination. Challenging the chaebol at, say, shipbuilding, might be trickier. The previous wave of young entrepreneurs—a result of the first internet boom, and the unemployment that followed the 1997-98 Asian financial crisis—threw up fizzy firms such as NHN, the operator of Naver (the “Korean Google”), and NCsoft, a maker of multiplayer online role-playing games. Each was once tiny but now belongs to the trillion-won club.

These new entrepreneurs are being joined by a growing band of foreigners, including ethnic Koreans from Western countries. Californian Koreans see no stigma in starting your own business. And they see South Korea, where the economy grew by 6.2% last year, as a land of opportunity compared with sluggish America. The country issues about 35,000 investor visas a year, mostly to small-scale entrepreneurs. The Seoul Metropolitan Government’s Global Centre has recently been swamped by expats seeking to attend its classes on Korean business procedures and regulations.

The city has also launched a “Youth 1,000 CEO Project”, to provide young entrepreneurs with free office space and grants of up to 1m won per month. South Korea’s President Lee Myung-bak grumbles that Korea has no Mark Zuckerberg (the baby-faced founder of Facebook).

The problem, though, is not young Koreans, who are both bright and energetic. Nor is it business-throttling regulations: South Korea does better on that score than Japan or Taiwan, says the World Bank. The real obstacle to enterprise is a society that urges its best young minds to aim low.
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